Health-care Giant To Cut Hospitals, Administrators

The Proposed Reorganization Of The World's Largest Health-care Company Comes In The Midst Of A Federal Investigation Of Its Business Practices That Led To A Management Shakeup Last Summer.

November 17, 1997|By KURT EICHENWALD The New York Times

Columbia/HCA Healthcare Corp. is expected to announce as early as today a broad reorganization that would cut its giant network of almost 350 hospitals by at least a third and reduce the number of its administrators.

The proposed reorganization of the world's largest health-care company comes in the midst of a federal investigation of its business practices that led to a management shake-up last summer.

People with ties to the company said on Sunday that under the plan, Columbia would move more than 100 hospitals out of the company. Under the leading option being considered, the hospitals would be placed in a separate corporate unit that would either be sold outright or spun off to Columbia shareholders through a distribution of stock.

Included in this group would be hospitals in rural areas and other markets that no longer fit the company's changing strategy.

The plan to cut the size of Columbia still is in development. As of Sunday night, the final method for disposing of the hospitals had not been determined and no plan had yet been approved by the company's board.

The decrease in the number of hospitals marks a sharp departure from Columbia's long-time strategy of aggressive growth. The company also intends to streamline its existing management structure to cut layers of bureaucracy that separate the senior executives at Columbia's headquarters in Nashville, Tenn., from local hospital administrators.

The reorganization of Columbia will not end there. Rather, this effort, which is expected to be discussed by the company in a conference call with medical-industry analysts this morning, is just another step in the transformation of Columbia/HCA, which already has made a number of significant changes in the way it does business. Other changes remain under discussion.

``This is just the next step,'' a source said. ``But it's a good step.''

Victor Campbell, a senior vice president at Columbia, confirmed that the company would soon be announcing a reorganization, but declined to comment further.

The reorganization of Columbia has been expected since shortly after the forced resignation in July of Richard Scott, the former chief executive who built the company from just two Texas hospitals to an industry behemoth. The new senior officers of Columbia, including Dr. Thomas Frist Jr., the chairman and chief executive, have repeatedly emphasized the need to push the company in a new direction, and to reorganize it to meet that new strategy.

Frist already has briefed a number of the company's directors about the reorganization, and government investigators who are looking into Columbia's business practices also have been kept informed of the plans.

The investigation centers on the company's billing practices and, according to an FBI affidavit, it ``uncovered a systemic corporate scheme . . . to defraud Medicare'' and other government health insurance programs.

While the sprawling federal investigation has had a wide impact on the company, Columbia officials said that the strategic shift was not being made in response to government concerns, but rather the requirements for improving the company's business. ``This is totally unrelated to the investigation,'' one person with ties to Columbia said. ``This is how best to run the company.''

Columbia officials, while confirming that they plan to announce their changes soon, declined to comment on any specifics of their strategic plan until after they inform company employees of their decisions.

Frist has undertaken similar reorganizations in the past, when he led Hospital Corp. of America. In the mid-1980s, HCA spun off its rural hospitals into a company called Healthtrust. But the companies were brought back together under Scott, who acquired both HCA and Healthtrust.